Economic disparity among generations under the Paris Agreement

The global climate movement has seen significant youth participation, fueled by the narrative that younger and future generations will bear the brunt of climate change impacts caused by older generations. While intergenerational gaps in climate change policy perceptions have been noted, a quantified analysis of the economic costs and benefits of mitigation by age cohorts at a country level has been lacking. This research addresses this gap by quantifying the lifetime costs and benefits of climate change mitigation across different age cohorts in various countries, under the framework of the Paris Agreement. The cost of mitigation is defined as the GDP loss compared to a scenario without mitigation, using data derived from Integrated Assessment Models (IAMs) in the 2014 IPCC report. The benefits of mitigation are quantified by the avoided economic damage due to temperature stabilization, using the Burke et al. (2015) damage function (BHM), which measures the nonlinear relationship between temperature and economic growth. The study employs a 3% discount rate to estimate lifetime costs and benefits in 169 countries, focusing on the 2°C target of the Paris Agreement. Lifetime costs and benefits are measured as cumulative GDP per capita (in 2018 dollars) throughout each cohort's life expectancy, considering income distribution data from the OECD database. The Paris Agreement scenario is represented by RCP 2.6, while the pre-Paris Agreement scenario uses SSP 4 and RCP 6.0. The research aims to provide a comprehensive quantitative analysis of the intergenerational distributional consequences of climate change mitigation policies under the Paris Agreement, addressing a critical gap in existing literature and informing the debate on intergenerational equity and climate policy.

Existing literature highlights the justice and inequality issues related to climate change across generations, but lacks a quantitative, country-level analysis of the economic costs and benefits of mitigation by age cohorts. Studies have explored intergenerational gaps in climate change perceptions and policy preferences, and some have investigated methods to design policies that reduce intergenerational disparities in climate change mitigation. This study builds upon this foundation by providing the first comprehensive quantitative assessment at the country level, bridging the gap between theoretical discussions of intergenerational equity and empirical economic analysis of climate change mitigation.

The study quantifies the lifetime costs and benefits of climate change mitigation for different age cohorts across 169 countries under the Paris Agreement’s 2°C target. The cost of mitigation is the GDP loss compared to a scenario without mitigation, estimated from several IAMs in the 2014 IPCC report. The benefit is the avoided economic damage from temperature stabilization, measured using the Burke et al. (2015) damage function (BHM). Both short-term and long-term versions of the BHM damage function are considered. Lifetime costs and benefits are calculated using a 3% discount rate, considering the life expectancy of each age cohort from the United Nations and World Bank data, and the income distribution from the OECD database. A "breakeven generation" is defined as the age cohort where lifetime costs equal lifetime benefits. The study also introduces an "intergenerational disparity index (IDI)" to quantify the economic disparity between 25-year-old and 75-year-old cohorts. The uncertainty of the results is analyzed by testing the effects of various parameters, such as different RCP and SSP scenarios, discount rates, and parameter values in the damage function, and by bootstrapping. The study uses data from the OECD database, World Bank, and World Population Prospects. R 3.6.1 and MATLAB 2019b were used for data processing and analysis, while R 3.6.1 and Origin 2019 were used for data visualization. The code is available at https://github.com/climate-change-ucsb/generation-disparity. Equations are presented to demonstrate the calculations of the life expectancy of age cohorts, income distribution, benefits of climate change mitigation, lifetime costs, the net gain in GDP per capita, breakeven year and the uncertainty test.

The study reveals a significant intergenerational cost-benefit disparity under the Paris Agreement. Age cohorts born before 1960 generally experience a net reduction in lifetime GDP per capita across nearly all nations, with the greatest reduction in low-income countries. In contrast, cohorts born after 1990 in most lower-middle- and low-income countries will gain net benefits from climate change mitigation. However, in high- and upper-middle-income countries, the results are sensitive to the model specifications. Using the commonly used short-term BHM damage function, most age cohorts in many high and upper-middle-income countries still incur a net reduction in lifetime GDP per capita. When using the long-term BHM damage function, the results show that the net gain of GDP per capita increases with the progression of birth years in high and upper-middle-income countries. The breakeven generation (the cohort where lifetime costs equal benefits) varies greatly by region and income level. In Latin America and South Asia, this generation is born before 1970, while in Eastern Europe it is after 1980. In high-income countries, the breakeven generation varies based on the damage function used, ranging from pre-1980 to nonexistent. The intergenerational disparity index (IDI), measuring the difference in percentage change in lifetime GDP per capita between 25-year-old and 75-year-old cohorts, is projected to widen over time, particularly in lower-income countries. In low-income countries, the median IDI increases from 0.06 in 2020 to 0.52 in 2100, indicating a substantial widening of the economic disparity between younger and older generations. Globally, this widening is most pronounced in Latin America, Africa, and parts of Asia.

The findings demonstrate a significant intergenerational cost-benefit disparity under the Paris Agreement. While younger generations might be more motivated to mitigate climate change due to greater net benefits, this motivation varies considerably across countries and depends on the time horizon considered. The lack of net benefits for any cohort in many high-income countries, using the short-term damage function, suggests that economic self-interest alone may not fully explain the youth-led climate activism in these regions. The study's results offer insights into attitudes toward climate change mitigation, suggesting that support might be higher in low-income countries where younger generations significantly outnumber those with net costs. Conversely, resistance to mitigation efforts might be stronger in regions like Eastern Europe, where the majority of the population faces net costs. The widening cost-benefit disparity over time highlights the increasing challenge of building intergenerational consensus on climate policy. Addressing this inequality may require policies tailored to different age cohorts, possibly including measures to redistribute the costs and benefits more equitably.

This study quantifies the significant intergenerational cost-benefit disparity associated with climate change mitigation under the Paris Agreement. Younger generations stand to gain substantial net benefits in most low-income countries, while older generations in many high-income countries face net costs, particularly when using commonly used short-term damage functions. The widening disparity over time presents a major challenge for policy-makers, requiring innovative strategies that address equity concerns across generations and income levels. Future research should explore policy interventions, such as carbon taxes and fiscal policies that might reduce the disparity, and should investigate how different models for measuring climate change impacts affect the outcome.

The study's findings are subject to uncertainties associated with the employed Integrated Assessment Models (IAMs), the damage functions, and the discount rate used. The use of the BHM damage function, while widely used, is still under discussion. The assumed income distribution across age cohorts might not perfectly capture the real-world complexity of income dynamics. Additional research with refined models, updated data, and a broader range of parameters is essential to enhance the robustness and accuracy of the results. Also, the study does not account for potential policy responses that address intergenerational disparities.